Practice Management News

Hospital Profitability Up Despite Increase in Supply Expense

Hospital profitability improved in October 2019, with operating margins, revenue, and other metrics increasing even in the face of a 1.4% boost in non-labor supply expenses.

Hospital profitability

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By Samantha McGrail

- Hospital profitability showed significant improvements in October 2019, with month-over-month operating margins up about three percent, according to a new report from Kaufman Hall.

According to the October 2019 data of over 800 hospitals, operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margins were up 85.1 bps year-over-year, outperforming budget by 44.4 bps.

Some of the contributing factors for these numbers are increased volumes, modest revenue gains, and decreases in most expense metrics.  

But not all hospital profitability metrics experienced favorable change in October 2019. For example, there was a noticeable decrease found among labor expenses across the country this year, which was anticipated in last year’s report. Specifically, total expense per adjusted discharge for October 2019 was down slightly by 0.2 percent year over year, and 1.9 percent month over month, performing about -0.3 percent under budget. 

But non-labor expense per adjusted discharge increased by 1.4 percent compared to the same period last year and 1.8 percent higher above budget. It was, however, down 1.1 percent month-over-month. 

In addition, drug expense per adjusted discharge rose 2.2 percent year over year, a .002 percent decrease from 2018. Drug expense also grew 1.6 percent month over month but fell slightly below budget at -0.4 percent. “The combined increase of supply and drug expense per adjusted discharge may be attributed to an unanticipated seasonality increase in severity,” Blake said. 

Furthermore, emergency department (ED) visits and average length of stay (LOS) fell by 0.1 percent and 0.8 percent year over year respectively. A common concern among physicians is that reducing length of stay will increase the risk of readmission and worsen outcomes for both the patient and hospital. 

Kaufman Hall also observed mixed volume performance in October 2019 despite improvement across most metrics. Discharge rose 1.5 percent year over year, a great contrast from 2018 when discharges declined by 4.6 percent year over year, according to the 2018 report. In addition, adjusted discharges increased 2.9 percent year over year, a growth from the previous year when discharges fell by 0.8 percent. 

Most of the hospitals featured in the report saw gradual revenue gains in October 2019. Net patient service revenue (NPSR) per adjusted patient discharge rose by 1.5 percent year over year and 1.2 percent month over month, and NPSR per Adjusted patient day rose by 1.5 percent year over year and 2.2 percent month over month.   

Hospitals also saw a bad debt and charity care gross decrease of 4.8 percent both year over year and month over month and was 5.2 percent below budget. 

“Despite some year-over-year gains in select metrics, these trends in both volumes and revenues clearly indicate that sustained instability being experienced by the nation’s legacy healthcare providers. Fluctuating revenues, volumes, and the migration of care to outpatient settings are just some of the factors placing immense pressure on organizations seeking to adjust to a changing business model,” the report concluded.